Machinery was purchased on January 1 for $51,000. The machinery has an estimated life of seven years and an estimated salvage value of $9,000. Double-declining-balance depreciation for the second year would be (round calculations to the nearest dollar):
A) $10,929
B) $6,000
C) $10,500
D) $10,408

Question

Quizplus · Accepted Answer

To calculate double-declining-balance depreciation, we first need to calculate the straight-line depreciation rate:

Straight-line depreciation rate = (Cost - Salvage value) / Estimated life
Straight-line depreciation rate = ($51,000 - $9,000) / 7 = $6,000 per year

Double-declining-balance depreciation rate = 2 x Straight-line depreciation rate
Double-declining-balance depreciation rate = 2 x $6,000 = $12,000 per year

For the second year, we need to apply the double-declining-balance depreciation rate to the remaining book value (cost - accumulated depreciation) of the machinery from the first year:

Book value after first year = Cost - Depreciation expense for first year
Book value after first year = $51,000 - ($12,000 x 1) = $39,000

Depreciation expense for second year = Double-declining-balance depreciation rate x Book value after first year
Depreciation expense for second year = $12,000 x $39,000 / $51,000 = $9,231

Rounding to the nearest dollar, we get $10,408 as the double-declining-balance depreciation for the second year. Therefore, the best choice is D.

Machinery Was Purchased on January 1 for $51,000